Skip to main content

RBI says ban on Rs 1000, Rs 500 notes proposed hours before telecast of PM’s speech

Reserve Bank of India. In response to a RTI query by HT, the central bank said the central board of directors recommended ban on rs 1000 and 500 notes at its meeting in New Delhi on November 8, hours before PM Modi announced the step on TV. (AFP File Photo )

The government and the RBI have kept the consultation process that led to the decision to demonetise 86% of India’s cash in circulation a closely-guarded secret. Both, however, have insisted that the demonetisation plan had been under discussion for long and consultations were being held.

Economic affairs secretary Shaktikanta Das told reporters on November 8 that there was “no need to go into the process which led to this decision. I think what we should be focusing on is the outcome and the decision itself”.

The government’s shock move has led to a severe cash crunch, forcing millions of people to line up at banks and ATM kiosks for more than a month. Cash withdrawals have been restricted, but most banks are unable to provide even that. The Opposition’s protests over the demonetisation move have washed out the winter session of Parliament.

The Reserve Bank of India Act, 1934, empowers the Union government to demonetise any series of banknotes. The government, however, cannot take this decision on its own, but only on the recommendation of the RBI’s central board.

In response to a right to information request, which Hindustan Times has sought, the RBI said the bank’s central board of directors made the recommendation at its meeting in New Delhi on November 8. Only eight of the 10 board members attended the crucial meet.

Apart from RBI chief Urjit Patel and economic affairs secretary Das, the meeting had RBI deputy governors R Gandhi and SS Mundra, Nachiket M Mor, the country director for the Bill and Melinda Gates Foundation, Bharat Narotam Doshi, former chairman of Mahindra and Mahindra Financial Services Limited, former Gujarat chief secretary Sudhir Mankad, and financial services secretary Anjuly Chib Duggal.

The law provides for a 21-member board, including 14 independent members, but the central bank has been operating with less than half.

Between the RBI board meeting and Modi’s demonetisation announcement, the government just had a couple of hours to process the bank’s formal recommendation.

Prime Minister Modi had convened a meeting of his cabinet later in the day when they were told about the decision. The ministers — who had to leave their mobile phones outside — were told to stay back till his address was telecast.

It isn’t that the RBI or the government hadn’t been making preparations for the mammoth notes recall exercise. The bank had already printed Rs 4.94 lakh crore in Rs 2,000 notes by November 8.

But former RBI officials said this implies that the board’s approval was a formality.

The way the demonetisation decision was taken was “highly irregular”, said a former top RBI official, who didn’t wish to be named. He said he did not believe the government and RBI had taken “adequate steps” to minimise harassment of people.

Another said he was concerned at the large number of vacancies in the central board. Of the 14 independent directors, the board has just four.

“According to the RTI reply, only three of them were present (at the meeting). That is the quorum,” he said.

24th DECEMBER, 2016, HINDUSTAN TIMES, NEW-DELHI

Comments

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...

External spillovers likely to hit India's financial system: RBI report

  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...

Healthy balance sheets augur well for economy: RBI Governor Sanjay Malhotra

  Large tariffs by the United States administration and elevated geopolitical risk have increased near-term global financial stability risks, and along with weather events pose downside risks to domestic growth, Reserve Bank of India(RBI) Governor Sanjay Malhotra said in the foreword to the Financial Stability Report released today.Noting that domestic growth momentum is buoyed by strong domestic drivers, sound macroeconomic fundamentals and prudent policies, Malhotra said: “External spillovers and weather-related events could pose downside risks to growth.”On the other hand, he said the outlook for inflation is benign, and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target.Commenting that the structural shifts reshaping the global economy are making policy intervention challenging, the Governor emphasised the need for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and...